Beta Inc. can produce a unit of Zed for the following costs: $$\begin{array} { | l | r | }
\hline \text { Direct material } & \$ 10 \
\hline \text { Direct labor } & 20 \
\hline \text { Overhead } & 50 \
\hline \text { Total costsper unit } & \$ 80 \
\hline
\end{array}$$ An outside supplier offers to provide Beta with all the Zed units it needs at $58 per unit. If Beta buys from the supplier, it will still incur 40% of its overhead. Beta should:
A) Buy Zed since the relevant cost to make it is $60.
B) Make Zed since the relevant cost to make it is $60.
C) Buy Zed since the relevant cost to make it is $80.
D) Make Zed since the relevant cost to make it is $30.
E) Buy Zed since the relevant cost to make it is $30.

Question

Beta Inc. can produce a unit of Zed for the following costs: $$\begin{array} { | l | r | } 
\hline \text { Direct material } & \$ 10 \
\hline \text { Direct labor } & 20 \
\hline \text { Overhead } & 50 \
\hline \text { Total costsper unit } & \$ 80 \
\hline
\end{array}$$ An outside supplier offers to provide Beta with all the Zed units it needs at $58 per unit. If Beta buys from the supplier, it will still incur 40% of its overhead. Beta should:
A) Buy Zed since the relevant cost to make it is $60.
B) Make Zed since the relevant cost to make it is $60.
C) Buy Zed since the relevant cost to make it is $80.
D) Make Zed since the relevant cost to make it is $30.
E) Buy Zed since the relevant cost to make it is $30.

Quizplus · Accepted Answer

The relevant cost to make Zed is $60, which includes direct material ($10), direct labor ($20), and 40% of overhead ($20). Since $60 is more than the supplier's price of $58, Beta should buy Zed.

Beta Inc Can Produce a Unit of Zed for the Following